The Major Forex Pairs at Major Break or Bounce Spots

All of the major currency pairs are showing interesting setups on the charts. A bearish breakout has finally occurred on the EURUSD and an important trend channel bounce or break could occur this week on the GBPUSD.

EURUSD MASSIVE BREAKOUT

The EURUSD could be at the beginning of a massive bearish breakout and might be restarting its strong downtrend from December ’14 and January ’15. An impressive daily candle pushed through the consolidation zone bottom (blue trend line) with a close near the daily low (purple circle).

Besides strong support from the technicals (downtrend, breakout), the fundamentals are also supporting a downtrend continuation on the EURUSD. The European Central Bank (ECB) will start its Quantitative Easing (QE) program in March whereas the Federal Reserve (FED) has no such plans to keep an eye on rate raises later this year if anything.

Although a downtrend is around the corner, the current bottom and the 1.10 psychological round levels still stand in its way and could act as potential support levels. Once the 1.11 and 1.10 support levels break, price could move lower towards its Fibonacci target as seen on the monthly chart here below.

Trade details: the best entry in my opinion is a pullback to the broken support line at around 1.1250-1.1275 (green circle) with a stop loss above the high of the breakout candle (red circle) at 1.1387. The first target is the -27.2 Fibonacci level at 1.07 followed by its -61.8 at 1.02 (blue), whereas the bigger time frame target is the -61.8 Fibonacci of the magenta Fib.

GBPUSD CHANNEL DECISION

The GBPUSD has been in an uptrend on the daily chart ever since the break of the long-term resistance trend line (red). The uptrend is best represented by the channel indicated by the green lines.

The uptrend could be in serious trouble due to the bearish engulfing twins (purple), which could easily limit the ambitions of the uptrend to a minimum. Therefore price is now at an important juncture and decision spot: break or bounce.

Depending on how whether price reacts bearish or bullish to the support trend line of the channel, both a bearish breakout or bullish bounce trade setup could occur within this trading week. However, in my opinion, a bearish break seems to be more likely due to the engulfing twins and the wick it created on top of the weekly candle.

The targets on the up and downsides are as follows:

The target for a downside break is simple: the 78.6 Fibonacci level of February’s bullish candle at 1.5078.

The target for an upside break is the confluence of two Fibonacci levels: the 38.2 Fibonacci retracement of the entire bearish swing high and swing low (blue Fib) at 1.58 and the -27.2% Fibonacci target (magenta) at 1.5714.

From a fundamental point of view the GBP could be relatively quite strong compared to the USD and EUR due to its upbeat economic figures and potential rate hike later this year. The GBP will in fact have a rate decision this week, but a change is not expected due to elections in May of this year.

The AUD, CAD, and EUR also have rate decisions during this week, and both the AUD and CAD are expected to cut their levels by a quarter percent from 2.25% to 2% (AUD) and from 0.75% to 0.5% (CAD). This week promises to be an exciting one.

Disclaimer: Trading forex on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts.

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